Kanen Wealth Management, 7.3% Holder and 13D Filer Writes Letter to BBW Board and Management

CORAL SPRINGS, Fla., Sept. 9, 2021 /PRNewswire/ -- 

Board of Directors
Build-a-Bear Workshop, Inc.
1954 Innerbelt Business Center Dr
Overland, MO 63114

Dear BBW Board of Directors and Executive Management,

BBW has a classified (staggered) board which has served as a moat for maintaining the status quo at BBW.

In 2014, Sharon John's first full year as CEO, BBW generated $392.3M in revenue and last twelve months revenue of $354.8M, or a decline of 10%. During the same time, Ms. Price John has earned in excess of $20 million in compensation. We believe BBW's potential far exceeds these sad results, yet her earnings reflect superior achievement. This begs the question as to whether our staggered board is doing a "best in class" job of oversight. Furthermore, is the board aligned and do they actually believe in our potential?

BBW has failed to innovate and do anything transformational to mitigate mall traffic declines.

BBW's web and digital presence is archaic and needs to be brought on par with the standards of 2021.

Here is just a short list of initiatives BBW should have executed on in recent years but did not:

• Transformational 3^rd party retail partnerships and stores within a store at large family entertainment center chains. This will drive high-margin asset-light cash flow generation. Some examples of targets with scale are: AMC theaters 900 + locations, Bowlero 300+ locations, Chuck E Cheese 500+ locations, and Bounce U 150 stores, just to name a few.
• Partnering with a large pet company for plush pet toys for dogs and cats. This is potentially an incremental $50M/yr in revenue. Examples of potential venues would be chewy.com, Petsmart, Petco, etc.
• Have a cutting-edge website and digital capabilities, along with a high quality transformational 3-D online bear buying experience.
• Partnership and development of advanced digital strategy including crypto plush as well as NFTs.
• Collaborative initiatives with schools that marry education with Build-A-Bear fun.

BBW is likely to earn $55M in adjusted EBITDA this year while ending the year with $65M in net cash. This values BBW stock at 3.6x EV/EBITDA. The valuation on the shares of BBW mean that the market is skeptical of BBW and believe the board and management will not only fail to create any value but will harm shareholder value.

Four of our board members have sold stock in recent months at nearby levels (and ~3.6x EV/EBITDA). These board members have little skin in the game and have not purchased shares with their own money, except for the Chairman who bought 9k shares since joining 45 months ago. If directors don't share the enthusiasm and belief in the business that other shareholders and senior management do — they should resign from the board. If these board members have not put skin in the game and are selling granted shares at 3.6x EBITDA, then why are they still serving on the board with such a clear lack of commitment? I hope it is not to clip $130,000 per year for four to five meetings per year and to boost their professional resume while keeping the BBW status quo and avoiding transformational initiatives.

The good news regarding the extreme lack of faith placed in BBW (according to the market's valuation) is that BBW can correct this by 1) repurchasing large amounts of stock at well below intrinsic value 2) execute on the list of transformational initiatives which are low hanging fruit.

We believe there are many other transformational initiatives that BBW can embark on and effectively monetize and create a more valuable brand, which currently has aided brand awareness of over 90% and over 9MM bonus club members.

We ask the board and management to immediately review and take action on the items we have mentioned; the status quo is unacceptable. As BBW frequently says "add a little more heart" - this time to the shareholders.

Sincerely,

Dave Kanen
President, Portfolio Manager 
Kanen Wealth Management, LLC 
Philotimo Fund, L.P. 
P: (631) 863-3100
E: [email protected]

SOURCE Kanen Wealth Management LLC